Correlation Between Lutian Machinery and DRLimited

Can any of the company-specific risk be diversified away by investing in both Lutian Machinery and DRLimited at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Lutian Machinery and DRLimited into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lutian Machinery Co and DR Limited, you can compare the effects of market volatilities on Lutian Machinery and DRLimited and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Lutian Machinery with a short position of DRLimited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lutian Machinery and DRLimited.

Diversification Opportunities for Lutian Machinery and DRLimited

0.33

Correlation Coefficient

Lutian Machinery  DRLimited

Weak diversification

The 3 months correlation between Lutian and DRLimited is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Lutian Machinery Co and DR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Limited and Lutian Machinery is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Lutian Machinery Co are associated (or correlated) with DRLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Limited has no effect on the direction of Lutian Machinery i.e., Lutian Machinery and DRLimited go up and down completely randomly.

Pair Corralation between Lutian Machinery and DRLimited

Assuming the 90 days trading horizon Lutian Machinery is expected to generate 3.74 times less return on investment than DRLimited. But when comparing it to its historical volatility, Lutian Machinery Co is 1.68 times less risky than DRLimited. It trades about 0.02 of its potential returns per unit of risk. DR Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,489  in DR Limited on December 3, 2024 and sell it today you would earn a total of  81.00  from holding DR Limited or generate 3.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Lutian Machinery Co  vs.  DR Limited

Lutian Machinery

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lutian Machinery Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lutian Machinery is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DR Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DR Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DRLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lutian Machinery and DRLimited

The main advantage of trading using opposite Lutian Machinery and DRLimited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lutian Machinery position performs unexpectedly, DRLimited can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in DRLimited will offset losses from the drop in DRLimited's long position.

The idea behind Lutian Machinery Co and DR Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.